Stock Chartist

Commentary and recommendations about the stock market, sectors and individual stocks from a chartists perspective. Observations are based on the belief that "at their core, fundamentals are subjective but momentum is fact."

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December 28th, 2011

While market direction and momentum trumps everything else, the Industry Group in which a stock belongs ranks second in importance. A subscriber to Instant Alerts last week brought to my attention a stock that, on further research is in an Industry Group that is worthy of taking a nibble into if the market will be able to sustain some sort of upward bias as we enter the New Year.

“Big Pharma” stocks, or the larger stocks in the Ethical Drug Industry Group, all seem to be forming nice size, well formed (so far) bases which could, with a good tailwind, be among the leaders in next year’s market. The Group has consistently ranked among highest among IBD’s 197 Industry Groups: Among the largest firms in the group whose charts show the early makings of nice bottom reversal patterns (a few have already broken above the top boundaries) include (click on images to enlarge):

LLY (Eli Lilly): crossed above upper boundary of an ascending triangle but is now facing a nearly 10-year descending resistance trendline which it failed to cross over in 2007 and may fail again next year.

GSK (GlaxoSmithKline): Let’s not split hairs. Was it an ascending or symmetrical triangle or was it an ascending wedge? It doesn’t really matter that much since stock is clearly trudging higher.

PFE (Pfizer): Same as GSK, ascending triangle or wedge? Same as LLY, facing a long descending resistance trendline.

NVS (Novartis): An nice inverted head-and-shoulders which, since it’s not at the bottom of a trend but at the top might be called, in IBD parlance, a cup-and-handle.

Others with patterns that are not as fully developed and still in progress include:

SNY (Sanofi-Aventis): an ascending triangle

AZN (AstraZenica): a 10-year horizontal trendline that needs to be crossed.

A lot to digest but, with a more cooperative market, some potentially good fruit to pick from. Note: all of these stocks pay dividend with yields currently 3.6% up to 4.8% for GSK. They are about the only stocks among the 45+ in the group that do pay dividends.